Rental value is the fair market price to rent a property. This is always influenced by current market conditions such as supply and demand. In addition to the overarching market dynamics, the specific features of a property influence rental value. East facing properties are typically more desirable than west facing properties but even this rule of thumb is dependent on location. For example, in Cape Town's Southern Suburbs the east-facing versus west-facing debate is mitigated by the fact that west-facing windows may enjoy stunning views of Table Mountain despite not getting the most morning sun. Similarly, south-facing properties are often worth more in Cape Town than north-facing ones because they overlook the ocean. Determining rental value is both a science and an art. It requires raw data on similar properties' rental prices and occupation rates as well as a keen ability to appraise the unique feature combinations of a property.
Just as there are identifiable features which determine the rental value of a property, there are ways to improve it! Let's take a look at a step-by-step method for improving rental value:
According to the Centre for Urbanism & Built Environment Studies (CUBES) at the University of Witwatersrand a 10% increase per year is considered reasonable. However, real-world data shows that this is not necessarily the case. In fact, during the financial strain caused by the COVID-19 pandemic average rental prices in the Western Cape saw negative growth for the first time in over a decade. Figuring these things out is a delicate balancing act and considering human factors is vital.
The bottom line of getting a viable rental income from your investment properties is the value provided to your tenant. That means, a viable rental value is only as much as tenants are willing to pay. Professional leasing agents have access to real market knowledge and insights which can be instrumental in guaranteeing occupancy. They will know which price points for comparable properties are not attracting quality tenants and they can share this information to advise you.